PRINT THIS PAGE

UK buyout market enters 2005 in strong shape

The rate of investment in the UK MBO market accelerated in the final quarter of 2004. According to figures released by KPMG’s Private Equity Group (which tracks UK buyouts with value over £10 million) 37 transactions with a total value of £5.42 billion were completed in the UK in Q4 2004.

Commenting on the quarter, Charles Milner, Head of Corporate Finance at KPMG’s Private Equity Group said “The last quarter of 2004 was strong across the whole of the UK buyout market. Two deals each over a billion pounds were completed [The AA and Saga], but there was also strong activity in the middle market. There is no sign that this level of activity will let up in the New Year.”

2004 in review

Overall in 2004, 145 larger buyouts were completed with a total value of £19.35bn. 2004 saw both the highest value and the highest number of deals for four years and represents an increase of 24 percent in value and 17 percent in numbers from the levels of 2003. The strongest area of activity was the larger mid market - £50m - £250m – which at £6.32bn for the year is at record levels.

Milner said “In 2004 the market has been characterised by strong competition for the best deals, a healthy degree of liquidity realising value from portfolios and continued interest in the asset class from investors. Demand for the best deals is intense and activity continues to be governed more by supply of quality opportunities than demand from private equity investors.”

2004 saw a reopening of the IPO markets and a return to higher levels of corporate M&A activity. However, secondary buyouts (where private equity investors are both buyer and seller) have reached record levels and continue to represent a significant part of overall volumes. This has been underpinned by strong continuing appetite from the banks with debt multiples markedly increased over the year. Milner adds “With this level of banking support a private equity backed bid has in many cases proved to be a winning combination, outbidding both trade and public market competition.”

There were fifteen public to private transactions during the year at a total value of £4.564bn, representing nearly a quarter of market value in 2004. The average value of each deal at £304m was a record high, including Chelsfield (£1,872m) and New Look Group (£699m). Milner noted “Public to private transactions will continue to be an important part of investment activity - although there cannot be many prospects for this type of deal which are not being closely monitored by potential private equity investors.”

Prospects for 2005

Milner comments “The outlook for 2005 is positive with evidence of high levels of investment activity backed up by improving market conditions and the ongoing availability of funding.”

“A particular feature of the UK mid market in 2005 will be a significant number of private equity houses who will be raising their next fund. Activity in 2004 will ensure that investors continue to view the sector positively and the fund-raising process will be assisted by recent levels of realisations and ongoing demand for investment in this asset class.”

Click here to view MBO statistics (pdf 59kb)

Click here to view table of top MBOs for 2004 (pdf 22kb)

You need Adobe Acrobat to read this document. If you do not have it, you can download it free from www.adobe.com/products/acrobat/readstep.html

KPMG’s Private Equity Group brings together our most experienced private equity practitioners from across the firm to devote their full attention to meeting the needs of the private equity community. The Private Equity Group gives support throughout all stages of the private equity life cycle, combining in-depth knowledge and understanding of the private equity market with financial, commercial and operational skills in order to address the issues that matter to the private equity community. For more details visit http://www.kpmg.co.uk